Finally, some sense on birth timing

For over four years, Andrew Leigh and I have been warning successive Federal governments about the potential adverse incentives the timing of changes in baby bonus and similar schemes are generating. In particular, when cash payments for births were introduced there existed a day where you would get your bonus if the baby was born a day or more later but not otherwise. If you could schedule your delivery, then a delay would be profitable and that is what many parents have ended up doing. Our research demonstrated this but governments persisted in ignoring it.

So it was with great delight that I read this report today in The Age.

THE federal government is warning obstetricians to ignore pressure from expectant mothers wanting to delay giving birth until after January 1 so they can access the government’s paid parental leave scheme.

The government is worried that some mothers may put their health and that of their unborn babies at risk by seeking to delay giving birth until they are eligible for the scheme, which offers 18 weeks of leave paid at the minimum wage for working mothers.

In a letter to the Royal Australian and New Zealand College of Obstetricians and Gynaecologists, Families Minister Jenny Macklin warned there had been a ”spike” in births after the introduction of the baby bonus on July 1, 2004, suggesting the government was keen to avoid a repeat.

The issue this time is not as clear cut as previous ones. The Government’s new parental leave comes into play and for some families will replace the baby bonus and, for a smaller fraction of them, will be financially more attractive. So, in many respects, I wouldn’t have expected changes in birth timing to be a big issue this time around — in previous rounds, the effects were so large the concern was on maternity hospital management and congestion rather than what any given parent/doctor might be doing in terms taking risks.

However, the Government’s letter (a) acknowledges the theory of what their policy might be doing and (b) uses the evidence from previous experience to support that. It may be small bikkies but it is evidence-based policy analysis as it should be. Cudos to Jenny Macklin for moving forward. Of course, it would have been nice not to have created the timing incentive in the first place but that involves trading off other government management issues — given the lower risks this time around that is likely an appropriate trade-off.